I Am Joe's Conscience

Employers are setting up ethics programs to teach workers to do the right thing. Is this the wrong approach?Norm Alster, CFO MagazineMarch 15, 2006

When the Ethics Officer Association held its first meetings in Waltham, Massachusetts, in 1992, there were 19 members. A decade later, the group of corporate-ethics officers had grown to 600. Today, thanks to financial scandals and regulatory reform, says executive director Keith Darcy, the recently renamed Ethics & Compliance Officer Association boasts a roster of some 1,200 members, including executives from 62 companies listed in the Fortune 100.

This emphasis on integrity has also trickled down to midlevel managers, who are increasingly being asked to attend ethics courses. Typically, the programs involve training in ethical reasoning, along with mechanisms to encourage the reporting of misconduct. In some cases, employees act out scenarios that could land them in trouble in the workplace. Says Kirk O. Hanson, professor and executive director of the Markkula Center for Applied Ethics at Santa Clara [California] University: "You're trying to help the broad middle strengthen its ethical backbone to resist going along with the evil few."

A noble goal, to be sure. But is there any reason to believe all these codes and classes and scenarios do any good? The evidence is mixed. A recent survey of more than 4,000 employees found that reports of misdeeds have not diminished. In fact, nearly three-quarters of the employees involved in the survey, which was conducted by accounting firm KPMG, said they had observed misconduct in the prior year. That's about the same level of wrongdoing reported in a pre-Sarbanes-Oxley survey.

Indeed, ethical training may not be enough to discourage cheating in a competitive business world. Training must be coupled with new techniques — things like preemployment screening and revamped performance reviews — if future Enrons and WorldComs are to be averted.

Whatever It Takes
The debate over the value of ethics training in the workplace is nothing new, of course. Upstanding moral behavior and unfettered capitalism don't necessarily always go hand in hand. Certainly, when employees are judged primarily by their ability to meet sales goals — or maximize shareholder value — no one should be particularly shocked that some cut corners to make the grade.

Critics of ethics training point out that almost everyone is exposed to some kind of moral teaching from parents, teachers, or religious leaders well before they enter the corporate world. The implication is clear. If employees don't know right from wrong by the time they enter the workforce, no ethics program on the planet will help fill the gap.

The KPMG survey does suggest that the most rigorous corporate-ethics programs have some value. Survey subjects who indicated their employers have a comprehensive ethics program (about 11 percent of respondents) reported fewer instances of misconduct, felt less pressure to bend the rules, and were more comfortable about reporting misdeeds to their supervisors. Ethics programs, concludes Richard Girgenti, partner in charge of forensic services for KPMG (Americas), "can have a positive impact."

Other survey results are more ambiguous. Nearly 60 percent of the group with strong ethics programs also said they had observed misconduct at their places of employment in the prior year (as compared with 65 percent at businesses without strong programs). Girgenti believes the relatively high levels of observed misconduct may stem from an increase in employee awareness of ethical issues.

Then again, it may simply reflect the pressure put on workers to hit their numbers. Remarkably, half of the respondents who said their companies have comprehensive ethics programs also noted that they felt pressure to "do whatever it takes to meet targets."

The 3.5 Percent Solution
Such pressure is not likely to disappear anytime soon. That's why some argue that companies need to move beyond ethics training to help rein in misbehavior. New techniques, particularly character screening and revamped reward systems, have emerged as promising approaches.

Backers of character screening hope to identify the ethically obtuse before they get hired. The thrust for this approach comes from recent psychological research showing that 1 to 2 percent of the population fit the clinical definition of psychopath. Dr. Paul Babiak, a psychologist and co-author of Snakes in Suits, a soon-to-be-released book on psychopaths in the workplace, has done in-depth studies of 200 executive personalities. Reports Babiak: "I found 3.5 percent had enough traits to suggest they might have psychopathic tendencies."

Disturbingly, many of the traits identified with psychopaths are considered desirable in top executives, notes Larry Colero, adjunct instructor in business ethics at the University of British Columbia. Psychopaths are often charismatic, and many are great storytellers. Moreover, they are highly competitive — and particularly skillful at influencing others.

Ethics training and codes of conduct will likely have no impact on this sort of personality type. This fact is not lost on officials at INSEAD, the France- and Singapore-based international business school. Says Dean Gabriel Hawawini: "We cannot claim to take someone with a shaky foundation and turn them into a paragon of ethical behavior."

Instead, school officials are taking a different tack when evaluating MBA candidates. During face-to-face interviews, school alumni probe candidates for ethical attitudes. INSEAD staff members also comb admissions files for claims that "inflate responsibilities or exaggerate achievements," says Hawawini.

In addition, the INSEAD dean says the school rejects candidates who score well on tests but seem willing to do anything to achieve their ends. "There have been candidates we've turned down because of ethical concerns, even though all the objective data — the GMATs, the grade-point average — were good enough," he notes.

Executive search firms are also beginning to try to spot the ethically oblivious before sending them out on interviews. "It's the theme of the day," notes Peter McLean, vice chairman at Chicago-based Spencer Stuart.

McLean says recruiters at the firm are doing more in-depth checking of potential candidates, particularly their references. Two preliminary reference checks are backed up by six further interviews with former bosses, peers, subordinates, auditors, and bankers. Meanwhile, outside investigators look for any evidence of credit or legal problems. McLean says Spencer Stuart also casts a wary eye on candidates who come from corporate cultures known for "stretching the truth" and "getting away with everything [they] can."

Stargazing
Companies not known for stretching the truth may have their own practices that encourage bad behavior. At the top of the list: performance reviews that focus primarily on quantitative measures. The problem, says the Ethics & Compliance Officer Association's Darcy, is that employees should not be judged solely on what they do, but also on how they do it.

Some companies, such as San Diego–based Premier Inc., actually factor conduct into employee-performance reviews. According to Megan Barry, vice president of ethics and compliance at the health-care purchaser, adherence to the company's code of conduct is part of the equation used to calculate annual pay increases for workers.

Still, it's unlikely that star employees will go unrewarded. It does appear, though, that top performers are at least getting a closer look from management these days. That's a seismic shift from how companies used to operate. "Five years ago, there was less eagerness to examine the star producer," notes Hanson.

In the end, keeping close tabs on those stars could be what saves some businesses from the Andrew Fastows and Nick Leesons of the world. Says Hanson: "At times, superior performance can mask questionable practices."

Norm Alster is a regular contributor to The New York Times and other publications.